How Retailers Can Achieve Wealth Through Savvy Pricing & Assortment Optimization

"Retailers today need every technological advantage they can get to track competitors' pricing and assortment in real time," said Gartner research vice president Kevin Sterneckert. "When advanced pricing and assortment optimization techniques are applied, retailers can realize ten percent inventory reductions, one-point increases in turn and two-to-three point improvement in margin," said Terry J. Donofrio of Retail Systems & Service in an RIS (Retail Info Systems News) whitepaper.  One thing for certain: Retailers using science-based tools and techniques can outplan, outperform, and outlast their competitors.

Implementing technology for assortment optimization, retailers gain immense competitive advantage with the ability to increase the understanding and optimization of assortments, provide the data for advanced planning solutions, better understand which categories are delivering the highest margins, seeing where the best returns are on their products, and note which categories might require the fewest markdowns. The basic premise is that every retailer needs to plan assortments that are wide enough and deep enough to meet local customer preferences and keep them coming back for more, while developing profitability through maximizing sales using pricing and assortment optimization and management.  

Advantages Of Pricing & Assortment Optimization: 

1. Receive up-to-date information on product performance. 

2. Adjust and compete with rivals on a timely basis.

3. Analyze sales and profits over time to identify historical trends and apply benchmarking.

4. Project the future on an item-by-item basis. 

5.  Keep the customer happy now -- and in the future.

Formerly, buyers had too much freedom to purchase whatever they wanted without considering the impact these decisions had on the bottom line, not to mention the exigencies of time and money of ordering products in advance and waiting to receive them in time. Today's economy and savvy consumer no longer allow for these foibles. 

And, as assortments drive the business for months or even full seasons at a time, retailers must plan their assortments right from the start, which means finding the balance between the assortment's width -- the number of products within a category -- and its depth, which is defined as the number of units for each one of these products.

Bottom Line For Your Bottom Line:

The proactive merchant can gain significant competitive advantage by using science to manage inventory and assortment optimization.  "Assortment composition is far too critical a merchandising decision to leave to the non-real-time, highly variable nature of human assessment, judgment, and actions," said Upstream Commerce CEO, Amos Peleg.  And don't forget the importance of knowing what others are doing at any given moment, for the greatest insight into your own pricing and assortment positioning in the here and now.

As increasingly-savvy consumers increasingly continue to force retailers to alter pricing strategies, it is imperative for the retailers to use price and assortment optimization to be opportunistic and flexible with their pricing, gain the advantages of benchmarking and history as a driver of revenue and profitability, and not miss any opportunities to capitalize on this information for the benefit of themselves or their customers.

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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